Free Markets and the Common Good

September 12, 2017

A criticism often directed at the free market economic system is that it encourages individualistic “self-interest” rather than the “common good.” Economist John Kenneth Galbraith said free market advocates are “engaged in one of man’s oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness.”

Government is needed, argue these critics, to counter self-interest with concern for the common good. As Michael Tomasky, Editor of Democracy: A Journal of Ideas, wrote in 2006:

Liberal governance is about demanding of citizens that they balance self-interest with common interest. Any rank-and-file liberal is a liberal because she or he . . . came to believe in this principle. And every leading Democrat became a Democrat because on some level, she or he believes this, too.

As the 2016 Democratic Party Platform proclaimed: “We need an economy that . . . rewards the common interest over self-interest.”

This disdain for self-interest, though, reflects a fundamental misunderstanding of free markets and the common good. A free market actually channels self-interest into healthy social interconnections, and generally promotes “the common good” better than government controlled systems.

In a free market, each person, working for his own self-interest, has to come up with something, some goods or services, that others want. He has a strong incentive to pay attention to, and care about, the needs of others. As Adam Smith explained in The Wealth of Nations: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest.”

It is the beauty of the free market system that the butcher, the brewer, and the baker, and all sorts of individuals, small businesses, and giant corporations, are all working hard and staying up late trying to figure out what others want. Students go to school partly to learn how to produce something of value – for others. Corporate CEOs sit at their desks trying to develop better ways to produce and deliver goods and services — for others. Millions of people working to serve each other – serving, in short, the common good.

Contrast a free market arrangement with a system devoted entirely to the common good: Communism. “From each according to his ability, to each according to his needs,” in the phrase popularized by Karl Marx. In a communist system, individual preferences are secondary to the needs of the community.

Yet under such a system, individuals can ignore the wants and needs of others. Since the government controls and dispenses wealth, citizens have no choice but to engage in a “me first” scramble for government-bestowed benefits. While free markets have people thinking “What can I do for others?” government-run economies have people thinking instead “How can I get some of that government-controlled wealth?” Rather than creating wealth together by producing goods and services for each other, people have to turn to the government for sustenance. So there’s no reason to care about others in your community – and a very good reason to try to elbow your neighbor aside in your quest for government-dispensed wealth.

Richard Pipes, former Baird Professor of History, Emeritus, at Harvard University, described in Communism: A History the selfishness induced by such systems:

The nationalization of productive resources, far from liberating men from enslavement by things, as Marx and Engles had envisioned, converts them into slaves of their rules and . . . makes them more materialistic than ever.

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[I]f an individual finds that others — be it government or society at large — do not respect his property rights he not only loses regard for their belongings but develops the most rapacious instincts.

In a free market, though, what a person gives and what a person gets is not determined by the government. It is determined by how well he serves others.

There are, of course, areas where the free market does not work. We pay taxes so the government can serve the common good by building roads and subways, paying police and firefighters, running courthouses, and funding schools. We also pay taxes for a social “safety net,” to provide for those who cannot produce goods or services for others. But such regions of government control should not be the model for the rest of society, but understood to be, for various reasons, exceptional areas.

Instead of being a dog-eat-dog system, a free market is a dog-help-dog system. A free market economy requires people to think of the needs of others, and to work to produce goods and services with others in mind, which promotes the common good. A government controlled economy has the opposite effect and, contrary to its goals, ends up encouraging selfishness.